Wall Street nearly unanimous on US rate hike next week: poll

[NEW YORK] Wall Street's top banks were nearly unanimous on the view the Federal Reserve will increase interest rates at its policy meeting next week following a stronger-than-forecast February US payrolls report, a Reuters poll showed on Friday.

Employers hired 235,000 workers last month, more than the 190,000 forecast among economists polled by Reuters.

A drop in unemployment, more people seeking jobs and a rebound in wage growth were other upbeat aspects of the report which economists at these top banks reckoned give the Fed a green light to raise rates by a quarter point to 0.75-1.00 per cent.

"It ticks all the boxes for the Fed to move next week," said Michael Hanson, chief US macro strategist at TD Securities in New York.

The Fed previously raised rates by a quarter point to 0.50-0.75 per cent in December.

TD is one of the 23 primary dealers or banks that do business directly with the Fed.

To be sure, the path of rate increases in 2017 could change, according to primary dealers.

It may speed up if the economy accelerates because of possible tax cuts, looser regulations and infrastructure spending from U.S. President Donald Trump and a Republican-controlled Congress. On the other hand, it may be slowed by overseas developments including surprise election results in Europe, which may roil financial markets, they said.

Barring unexpected outcomes, the widely anticipated rate increase in less than a week would be followed by two more hikes later in 2017, according to the poll.

A prior Reuters poll conducted on Feb 3 showed 14 primary dealers surveyed say they expected no rate hike in March with 12 of them anticipating such a move by the end of the second quarter.

The dramatic shift in expectations for a March hike came even before Friday's strong jobs figures.

Last week, a group of Fed officials including Fed Chair Janet Yellen hammered the point they were prepared to lift rates at its upcoming meeting as the economy is near full employment and inflation to closing in on their 2 percent goal.

Traders' view on a March increase, as measured by interest rate futures, jumped to 80 per cent from 30 per cent in reaction to a barrage of hawkish rhetoric from policymakers.

Their view on the possibility of a rate hike strengthened to 93 per cent after Friday's jobs report, according to CME Group's FedWatch tool.

After March, however, primary dealers were split on the timing for when the Fed would raise rates during the rest of 2017.

Twelve of the 23 dealers saw a rate increase to 1.00-1.25 per cent by the June 13-14 meeting, while nine expected such a move by the Fed's September meeting, the latest Reuters poll showed.

Six of them forecast the Fed's final rate hike for 2017 at its September meeting, bringing its target range to 1.25-1.50 per cent.

Fourteen primary dealers said they saw the Fed raising rates to 1.25-1.50 per cent at its Dec 12-13 meeting.

REUTERS